Title

New Kids on the (Tax-Exempt) Block: The Rise of the “527”s

History will remember the 2004 election for many things, most notably for its effect on the political futures of George W. Bush and Iraq. But the election also marks the emergence of a previously obscure tax-exempt, nonprofit organization. We refer, of course, to the rise of so-called “527” political committees. The impact of these groups on voters may well determine the election’s outcome.

A “527” organization—the name denotes the portion of the federal tax code that regulates its operation—can accept unlimited contributions from unions, individuals and otherprivate sources to spend on political activities such as television and radio ads, voter mobilization drives and other advocacy efforts. There are two significant legal limits on 527s: 1) its activities are permissible as long as the group doesn’t directly coordinate them with a political party or candidate; and 2) the activities must be focused on issues.

“527” groups have existed for many years, but it wasn’t until 2003 that they became major players in election campaigns. The catalyst was a series of huge donations made by prominent liberal activists determined to defeat President Bush and the GOP. Billionaire financier George Soros donated more than $15 million in just a few months to three 527 groups—America Coming Together, MoveOn.org and the

Media Fund. Other liberal activists, such as Soros’ friend and ideological partner Peter Lewis, donated millions more to these and other 527 groups set up by labor unions, environmental groups, feminist organizations, the trial lawyers and other liberal special interests.

It’s no coincidence that the political left has the current monopoly on 527 committees. Faced with the Bush-Cheney campaign’s substantial “hard money” fundraising advantage (i.e. direct contributions of up to $2,000 per person per political candidate), Democrats are using major infusions of “soft money” to groups like the Media Fund and MoveOn.org to level the fundraising playing field. Thanks to the 527s, left-leaning activists may raise as much as $400 million. As of late June, the

Bush-Cheney campaign had $216 million on hand, putting it ahead of Senator John Kerry’s campaign, which reported contributions of about $149 million. However, to the surprise of many political observers, Kerry fundraising exceeded Bush in the period between March and June 2004. It raked in “hard money” contributions of more than $100 million – the most money ever raised by a presidential candidate in such a short period of time.

The Conservative “527” Counterattack

The spread of 527s has figured prominently in the news. In mid-May the Federal Election Commission (FEC) opted not to place any restrictions on 527 fund-raising activities. In effect, it dismissed Republican Party charges that the 527s were breaking the new campaign finance law. In an ironic twist, GOP officials charged that Democrats, who strongly supported strict limits on campaign donations, were now violating the campaign finance law they sought, and thatthe GOP had once strongly opposed. Jill Holtzman Vogel, chief counsel for the Republican National Committee (RNC), declared, “Senator Kerry, who supported the Bipartisan Campaign Finance Reform Act, is now the beneficiary of the single largest conspiracy to violate campaign finance laws in history.”

The FEC didn’t see it that way, ruling that the McCain-Feingold law did not restrict donations to 527 committees. Bradley Smith, the FEC’s chairman (and a Republican), was particularly derisive about GOP complaints: “IfRepublicans think they can win by silencing their oppo sition, they are wrong and they are going to deserve to lose.”

Observers now expect the FEC ruling to provoke the creation of a constellation of conservative 527s. Immediately after the FEC decision, RNC Chairman Ed Gillespie and top Bush campaign staffer Marc Racicot predicted that “the battle of the 527s is likely to escalate to a full-scale, two-sided war.” For instance, a conservative 501(c)(4) group called Progress for America (PFA) announced plans to turn itself into a 527. As a 501 (c)(4), PFA could support ballot initiatives and lobby without any limits, but it still had to be careful about working for or against a political candidate. However, 527 groups can be more politically involved as long as they do not coordinate their activities with the candidate.

The Washington Post (May 25) predicted that important GOP financial supporters such as James Francis, Jr. would play major roles in a reconstituted PFA. Indeed, PFA may well be the flagship of any conservative 527 fleet that forms between now and November. PFA president Brian McCabe says his group wants “to match what the liberals have done in the last year and counter their message.”

On June 25, the Progress for America Voter Fund went public. The new 527 group is producing hard-hitting TV ads asking viewers to consider how Sen. John Kerry would have responded to the September 11 attacks given his record ofvoting against defense and intelligence appropriations. The PFA Voter Fund vows to spend more money on similar ads to fulfill its mission: “keeping the record straight on the campaign trail and serving as a ‘Political Truth Squad.’” Columnist James Glassman has said PFA will energize conservatives in the election. However, he predicts that, thanks to the McCain-Feingold law, the presidential election will no longer be “simply a battle between two campaign organizations or two parties.”

Another new conservative 527 is the Leadership Forum, which is organizing support from members of Congress, including House Speaker Dennis Hastert (R-Ill.) and Senate Republican Conference chairman Rick Santorum (R-Pa.). The Forum is headed by Susan Hirschmann, Majority Leader Tom DeLay’s (R-Texas) ex-chief of staff, and former Rep. Bill Paxon (R-N.Y.). But fundraising is a challenge because the group got such a late start. The Center for Responsive Politics reports that donations are less than $500,000 this year. Says Hirschmann, “We’re playing catch-up.”

How effective will the pro-Republican 527 groups be in this election and afterwards? Recent media reports suggest that the liberal 527s are important for activist strategies. Newsweek magazine calls the 527s “a flotilla of Bush haters.” The radical Nation calls them the “beat Bush brigades.” Washington Post reporter Thomas Edsall says they may herald the rise of a “shadow version of the Democratic Party.” And Business Week calls the 527s “a web of interlocking, like-minded organizations that could at once save and partly supplant the Democratic Party.”

Over the past several months Capital Research Center has published in-depth profiles of emerging liberal 527 groups. (See the April 2004 Labor Watch on labor union-based 527s; John Gizzi’s analysis of 527 group links to the Democratic Party in the May Organization Trends; and John Carlisle’s two-part look at George Soros’ involvement with 527s in the February and March Foundation Watch.) This article explains why 527s have become so important and describes some of their most recent activities. It also offers an update on how liberal 527 groups are helping the Kerry-Edwards campaign offset Bush-Cheney campaign spending.

Why Liberals Need 527s: A Substitute for the Democratic Party?

What explains the sudden prominence of 527 groups? Four explanations are circulating in left/liberal political circles.

The first sees 527 groups as the product of Democratic Party failings under President Bill Clinton. Many partisan Democrats look back to the 1990s as a golden time dominated by the charismatic Clinton who twice led the party to victory. But other activists have had second thoughts – they think liberals got lazy under Clinton.

Jim Jordan was for five years a senior political advisor to Senator John Kerry and managed his presidential campaign until Kerry fired him in November 2003. He now

has his own political consulting firm, Thunder Road, which represents three major 527 groups: America Coming Together, the Media Fund, and America Votes. Jordan diagnoses the situation this way: “Wehave a lot of energy... but we too often lack discipline... Frankly, after eight years of Clinton in the White House, [we] got a little selfish and a little fat. [We] forgot what it takes to put together a winning coalition.”

According to activists like Jordan, liberals relied too much on the charisma of their leading-lights and avoided the hard work of mobilizing the grassroots. That view is a common complaint. According to leftist reporter John Nichols, “The party apparatus has withered in much of the nation. You can now drive for hundreds of miles across the western United States without touching a county where the party has a viable local organization.” (Nation magazine, April 26, 2004.) Nichols argues that to compensate for the party’s failings liberal 527 groups have raised as much as $200 million “from wealthy liberals and allied labor and issue-advocacy groups ranging from the AFL-CIO to the League of Conservation Voters and the Association of Trial Lawyers of America.” Columnist Harold Meyerson concludes that the 527s represent “a new range of organizations that would in effect privatize the Democratic Party.” (American Prospect, March 2004), while Harold Ickes, Jr., a former Clinton White House official and the founder of the Media Fund, told Business Week: “We’re a lot like a campaign, but without a candidate.”

A second group of liberal activists is more upbeat. They see in the 527s a sign of liberal renewal and competitiveness. RobertBorosage, co-director ofCampaign for America’s Future, a leading liberal advocacy group, has argued that the left needs to build an “independent capacity to drive” its agenda. It can’t rely solely on unions, the Democratic Party, or Hollywood high-dollar donors. Borosage, who was once issues manager for Jesse Jackson’s presidential campaign, believes 527s can be the “independent vehicles” that steer citizens into left-wing political activism (Nation, June 2, 2003).

Others see the 527s’ rise as mainly a consequence of campaign finance law changes resulting from the 2002 enactment of the McCain-Feingold law. Governor Bill Richardson (D-NM) told Fortune last November that “now that campaign finance reform is law, [527s] have become the replacement for the national Democratic Party.”

America Votes: Targeting the Base

A fourth explanation offers a more organizational focus: it holds that 527 political groups can best target the Democratic base vote, identifying potential voters while avoiding the duplication of effort. However, the left has so many 527 political committees that there is even one called America Votes whose mission is, in the words of one staffer, “making sure [the 527s aren’t] tripping over each other out in the field” and “all block-walking the same block on the same evening.”

Twenty-two nonprofit advocacy groups and labor unions reportedly have contributed $50,000 each to finance America Votes. They include ACORN, AFL-CIO, American Federation of State, County and Municipal Employees (AFSCME), the Association of Trial Lawyers of America (ATLA), EMILY’s List, League of Conservation Voters,

MoveOn.org, Moving America Forward, NAACP National Voter Fund, NARAL Pro-Choice America, Partnership for America’s Families, People For the American Way, Planned Parenthood Action Fund, Service Employees International Union (SEIU), and the Sierra Club.

As the above list demonstrates, a 527 group delivers more than money. Liberal 527 groups pose a threat to the GOP in 2004 precisely because their purpose is to coordinate the activities of deeply committed political groups and activists. With a sharply divided electorate, these activists are more important than ever. The journal Campaigns & Elections (February 2004) reports that with “current polls showing nearly 90 percent of Republicans approving of [the Bush administration performance] and less than 20 percent of Democrats expressing that same opinion,” Democratic campaign staffers and advisors believe that it makes more sense to mobilize sure-fire supporters rather than people who “are still on the fence.”

Partnership For America’s Families: A Minority Strategy

Yet another liberal 527 group, the Washington, DC-based Partnership for America’s Families (PAF), targets “working families, communities of color and women.” Heavily backed by organized labor, PAF reportedly has raised $3.5 million so far and plans to raise another $12 million this year.

PAF began its mobilization strategy in November 2003, when it supported liberal Democrat John Street in Philadelphia’s mayoral race. Street owes his victory in large part to PAF efforts. Its activities on his behalf provide a taste of what 527s can achieve on the national level.

The strategy in Philadelphia was straightforward – meet with potential voters from the Hispanic and black communities early on and follow-up repeatedly with phone calls and leaflets. According to the Atlanta Journal Constitution, PAF and other activist groups started mobilizing as early as April 2003. In seven months the mobilization drive registered 85,000 people to vote. “We went back to [the] same homes three and four times,” said PAF worker Tom Lindenfeld.

Street won by 85,000 votes. Harold Meyerson called the PAF campaign “a mind-boggling achievement.” The St. Petersburg Times estimates that ofthe 85,000 voters registered by PAF, 38,000 turned out to vote. PAF’s voter registration drive continues; a PAF spokesman says his group expects to register another 85,000 Philadelphia area minority voters by November.

The PAF “multiple visit” strategy is the brainchild of its chief, Steve Rosenthal, a former AFL-CIO organizer and a master of union get-out-the-vote drives. “If we talk to people in as personal a way as we can and as many times as we can, we will win them over,” he says. Rosenthal’s theory is that the “base on the [left-wing] side [of the political aisle] is much more expandable” than the right’s base. Rosenthal hopes PAF can register, educate and turn out “hundreds of thousands of progressive voters” in 2004.

Rosenthal puts great stock in mobilizing minority voters because he believes the Democratic Party takes them for granted. The Party’s usual plan of action “has been often to ignore [minority communities] 50 weeks out of a two-year election cycle, then send in recorded phone messages... and last minute mail ... Our goal is to try to keep communicating with people over a two-year process.”

America Coming Together (ACT)

Rosenthal has a second job. He is the chief executive officer of America Coming Together (ACT). Unlike PAF, which mobilize minority voters in specific cities— Philadelphia, St. Louis, Cleveland—ACT is a 527 that is set up to mobilize minority voters statewide.

The ACT leadership is the red-hot center of liberal special interest groups. Besides Rosenthal, there is Carl Pope, executive director of the Sierra Club, Andrew Stern, president of the Service Employees International Union (SEIU), and Ellen Malcolm, president of the pro-abortion Emily’s List. Benefiting from a $10 million start-up donation from George Soros in 2003, ACT’s goal in 2004 is to raise $75 million for voter mobilization campaigns in 17 battleground states, including Florida, Ohio andPennsylvania. ACT and the Media Fund are the largest and most formidable of the liberal 527s. Harold Ickes, who is spearheading fundraising for ACT and the Media Fund, says that by the end of May the two groups already had amassed $100 million.

Florida is, of course, a crucial battleground state – President Bush won it by only 537 voters. ACT hopes to deploy 4,000 activists who will go house-to-house in all of Florida’s 88 counties to round up 200,000 new voters, especially from minority communities. As early as November 2003, just months after it was formally

John Hennelly, the state campaign director for SEIU, coordinates mobilization activities out of the state ACT office in Miami. Hennelly is impressed with the organization and motivation of ACT and its allies. “In my 15 years in politics, I’ve never seen anything on this scale,” says Hennelly. “To win Florida, you have to do everything and do everything well.” Mobilization drives come down to volunteers spending long hours knocking on doors and talking on phones. In a May 24 Christian Science Monitor article, Hennelly reports that in one day 18 activists knocked on 597 doors, talked to 411 people, and registered 19 voters. He concedes that’s a lot of work for 19 people. But those newly registered voters will be contacted nine more times, by phone, mail, or in person before election day.

ACT is conducting similar drives in Ohio and Pennsylvania, according to an April article in the Nation. In those states, “canvassers are trudging from door to door with a video presentation showing laid-off steelworkers explaining the devastating impact of Bush’s decision to lift tariff protections.” In Pennsylvania, ACT has offices in Harrisburg, Philadelphia and Pittsburgh, and will open new ones in Johnstown, Scranton, and Allentown.

ACT Pays Convicted Felons to Canvass Voters

In June, it was discovered that ACT was paying convicted felons – some convicted of burglary and sex offenses – to conduct door-to-door voter registration drives in at least three states. ACT says it pays felons $8 to $12 per-hour to canvass neighborhoods and register voters in major metropolitan areas in Missouri, Florida and Ohio. Some of these convicts live in halfway houses; at least four returned to

prison. ACT officials said it’s possible that felons are working in the 14 other states the organization is targeting. ACT employs a total of 1,000 canvassers in the 17 swing states.

The Associated Press discovered that dozens of ACT employees in Missouri, Florida and Ohio had been convicted of crimes such as burglary, sex offenses, assault, drug dealing and forgery. The names of two ACT employees in Ohio matched the names of persons convicted of murder and rape, but the Associated Press was unable to verify that they lived at the addresses listed by ACT.

Felons on probation or parole are ineligible to vote in many states. But election experts are unaware of any laws against felons registering voters. ACT canvassers request personal information such as telephone numbers, driver’s license numbers, birth dates, or partial social security numbers depending on what a state requires for voter registration.

ACT defends the controversial practice. ACT spokesman Mo Elleithee says, “We believe it’s important to give people a second chance.” But the practice has put the Kerry campaign on the defensive. Kerry campaign spokesman Allison Dobson says, “We’re unaware of it and have nothing to do with it.” Kerry officials also stress that they do not coordinate with ACT even though the 527 group is stocked with veteran Democratic operatives.

Florida corrections officials said felons released from prison and not on parole or probation are free to take canvassing jobs with ACT. But Missouri corrections officials don’t agree with the ACT felon-hiring policy. In April, the Missouri Department of Corrections banished ACT from its pool of potential employers for parolees at its halfway houses in St. Louis and Kansas City. Said department spokesman Jim Fougere, “From a public safety standpoint, we didn’t want offenders to be in a situation where they would be handling that information.” ACT’s Elleithee says that at least two felons recently released from a Missouri halfway house are again employed by ACT “and are a tremendous part of our team.” But four of ACT’s former employees living at a halfway house have since been returned to prison—two for drug violations, one for endangering the welfare of a child, and another for walking away from the facility. Fougere says none of the incidents were related to their work for ACT.

Republican Party officials have denounced the ACT policy. RNC chairman Ed Gillespie called the policy “disturbing” and questioned the wisdom of using felons “to go house to house and handle sensitive information.” Ohio Republican Party Chairman Robert Bennett called on ACT to immediately disclose all current employees “and reassure Ohioans that these violent offenders are not canvassing their neighborhood.”

ACT spokesman Elleithee responds that the 527 group has a policy of not employing violent felons, but he wouldn’t describe what the organization considers violent. ACT has also declined to verify the criminal backgrounds of any specific employees.

Soros vs. Soros

The rise of 527 groups has created some interesting problems for liberal reform groups. On June 22, three campaign finance watchdog groups that are usually allied with the Democratic Party on campaign reform issues filed a complaint with the FEC. Democracy 21, the Center for Responsive Politics, and the Campaign Legal Center alleged that ACT was spending money illegally on political campaigns. They said ACT should use limited “hard money” donations, not unlimited “soft money” donations, to pay for its fundraising letters.

According to the complaint, ACT has spent as much as $1 million to finance mailings that target President Bush. “When election day is over, we will have defeated George W. Bush and elected progressive candidates all across the nation,” says one fundraising letter. “The extraordinary effort we’re undertaking is in response to the extraordinary damage Bush and his allies do, on a daily basis, to values we believe in and to people we care about.”

The watchdog groups argue that because the letters name no state and local candidates, but only Bush, a federal candidate, the solicitations must be funded with hard money that is subject to strict limits. Fred Wertheimer, head of Democracy 21, charges that ACT “has illegally spent soft money on direct-mail public communications that attack and oppose President Bush.”

But ACT spokesman Jim Jordan said his group has done nothing improper: “It is, we believe, completely without merit.” ACT admits it paid for the letters with soft money donations (not subject to any limits) provided by individuals, unions and other interest groups. Moreover, ACT knows the complaint will not affect its anti-Bush campaign. It is highly unlikely that the FEC will act before the November election, and it often takes years for the agency to resolve a complaint.

Another irony: ACT and two of the watchdog groups opposing it get their money from the same source—George Soros. As a rich and bitter enemy of George Bush, Soros gave ACT $10 million in startup money. But as an advocate of campaign finance reform, Soros over the last seven years has given $18 million to groups working to remove big money from the election process. This includes $125,000 to Democracy 21 and $75,000 to the Center for Responsive Politics.

The Media Fund’s Air War

PAF and ACT specialize in running the 527 “ground-war offensive” of door-to-door voter mobilization. The Media Fund, by contrast, runs the “air war” – it produces TV and radio ads and buys time to run them across the U.S. The Fund is awash in money; it raised $12 million during the first quarter of 2004. So far, the Media Fund has spent $25 million on national advertising. According to the San Francisco Chronicle, the Fund is raising its big bucks from people such as “insurance tycoon Peter Lewis, Hyatt heiress Linda Pritzker and several Hollywood figures, led by mogul Steve Bing, and also including Paul Newman, Kevin Bacon, Norman Lear, Chevy Chase and Rob Reiner.”

Former Clinton adviser Harold Ickes, who founded the Fund, rejects Republican complaints that the ads violate campaign finance law because they are anti-Bush. (See sidebar on page 3 for transcripts of Fund ads). Ickes told the New York Tim es, “Politically, we are trying to really highlight, underscore and push into sharp focus the policies of the Republicans. That may have a certain effect on the Bush or the Kerry campaign, but we are not involved in electing or defeating people. We are raising issues.”

Media Fund radio and newspaper ads lambast Administration policies at every turn. In a 60-second spot, the Media Fund accuses Bush of breaking promises he made at the 2000 Republican nominating convention in Philadelphia. “This is Wednesday, June 23, and George Bush is back in Philadelphia,” says the announcer. “Mr. Bush – before you bring us one more promise, stop breaking the promises you made four years ago.” The Fund says the President is responsible for the loss of 1.9 million jobs nationally and higher health insurance costs. The Media Fund ran a full-page ad with the same message in the Philadelphia Inquirer.

ACT, the Media Fund’s “ground war ally,” amplified the anti-Bush message at a rally it staged at City Hall the day before.

The Media Fund has similar ad campaigns in West Virginia, Ohio, Nevada and Missouri, all battleground states. Media Fund president Erik Smith says polls show that concentrated advertising during a presidential visithas an impact. “We know that presidential visits tend to focus people on politics more than on a typical day,” said Smith. “It’s the same reason advertisers try to sell golf equipment during the U.S. Open: You’ve got an audience focused on something.” On June 21, the Media Fund ran ads hitting Bush for job losses in Ohio while he attended events in Cincinnati. Earlier in Nevada, the group focused on the Administration’s unpopular plan to store radioactive waste at the state’s Yucca Mountain.

The Campaign in Florida

Memories of the Bush-Gore campaign in2000 have concentrated liberal attention on the state of Florida, which has become the focus of much 527 group effort. Press reports note that the Media Fund, MoveOn.Org and the AFL-CIO spent $6.6 million on television “issue” ads across the state from March 3 to May 27. The Bush-Cheney campaign spent $14 million and the Kerry campaign spent $7 million. While the Bush-Cheney campaign spent double the Kerry campaign on television ads, the efforts of the Media Fund and other groups closed the gap to about even — $14 million for Bush to $13.6 million for Kerry and his 527 allies.

A May 24 article in the Orlando Senti n el reports that the Bush campaign spent $2 million on advertising in Orlando through mid-May, compared to $1.3 million spent by the Kerry campaign. But the Media Fund spent nearly $900,000 on TV ads and MoveOn.Org spent $250,000. This gives Kerry the fundraising advantage.

In West Palm Beach, the Bush campaign spent $750,000. That compares to $536,000 by Kerry, $345,000 by the Media Fund and $220,000 by the AFL-CIO—total $1.1 million, or $350,000 more than Bush.

In Tampa’s TV market, Bush spent $2.2 million through mid-May and Kerry $1.5 million. But the Media Fund spent $1.2 million and MoveOn.Org $100,000 -- total $2.8 million, or $600,000 more than Bush.

Conclusion: “527”s – Can They Succeed?

The liberal 527s believe they can become a powerful force in American politics. Cecile Richards, head of America Votes, says that “outside organizations” like hers are going to play a larger and larger political role. But not everyone is so sure. Grover Norquist, president of Americans for Tax Reform, has argued that interest groups on the left are really “competing parasites.” He thinks they will find it hard to coordinate their activities – no matter how much money they raise or how many names they enter into their computers.

The left’s penchant for destructive competition is already on display. In November 2003, the AFL-CIO’s Steve Rosenthal and Gerald McEntee, president of the powerful American Federation of State, County and Municipal Employees (AFSCME), fought over who would head up the Partnership for America’s Families. The dispute was settled only when McEntee started Voices for Working Families, a separate 527 group.

Moreover, is the 527 focus onmobilizing core supporters a sound political strategy? The well-regarded analyst Stuart Rothenberg argues that winning support fromswingvotersbecomes more important, not less, in periods of closely-divided political polarization.

Liberal commentator George Packer, writing in the Sept/Oct 2003 Mother Jones, is more harsh: “The heart sinks at names like Partnership for America’s Families, or Campaign for America’s Future [another 527 group]. They have the air of futile calculation, like a losing basketball franchise changing its name from Bullets to Wizards... These groups, coalitions and alliances are so obviously missing an ability to speak to Americans as a whole – as Americans.”

It remains to be seen whether the liberal 527s will live up to their founders’ expectations. As Communist China’s Chou En-lai once said when asked to measure the influence of the French Revolution: “It is too early to tell.”